This course "FinTech Security and Regulation (RegTech)" help you to understand RegTech and to become more confident and persuasive in your ability to analyze and make recommendations to executives within the finance industry regarding how to react to these changes, e.g. Regulations to cryptocurrencies like BitCoin & Initial Coin Offering (ICO). It presents the views of several professors from the top business school in Asia as well as perspectives from industry professionals.
You will learn about how FinTech and RegTech disrupt and transform finance industry, such as challenges in protecting data and security with digital forensics, risk management and corporate governance in banking industry in terms of Know Your Customer (KYC) and Anti Money Laundering (AML), and how governments in different countries take initiatives in FinTech and RegTech.

JM

Very informative and glueing. Professor's method of teaching was very lucid and to the point. Great value for those who want to understand the regulatory aspects that may impact Fintech going forward.

LZ

Sep 02, 2019

Filled StarFilled StarFilled StarFilled StarFilled Star

Really enjoy this course. It brings so much thoughts to me and I think I am starting to understand the basic logic of regulations and RegTech.

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Risk Management & Government Control

In this module, we explore some of the tools government use to regulate financial markets and discuss potential challenges for FinTech innovators in complying with these regulations. Some basic terms commonly used in finance such as AML & KYC are defined and described. We examine the role of different government agencies as well as alternative social objectives that influence the development of regulations over time.

Преподаватели

Theodore Henry King CLARK

Associate Professor

Текст видео

Welcome back to our course on FinTech Security and Regulation. In today's sessions, we're going to talk about regulatory protection of consumers, regulation designed for consumer protection. In general, regulations to protect consumers come of three types: one is to protect consumers from fraud. And fraud is rampant in financial services. Many FinTech companies have gone out of business or been guilty of fraud. And this isn't just FinTech, fraud has been endemic to financial services for more than 100 years. We've had people selling things to get your money that weren't real and promising returns that were unrealistic or an achievable in a variety of different schemes. And as time goes on, people get more creative and they use technology. So, fraud is a problem, and so governments are very concerned about this. They want to stop consumers from being ripped off. Some of those protections are protection from frauds, some of those protections from consumers being tricked in some ways by financial institutions like misleading documents that understate the real cost of a loan. And so you may have protections, not exactly against fraud in the sense of losing all your money, but maybe overcharging, or unexpected fees, or unfair fees. So, payday lending operation might find itself under consumer protection laws where regulators are saying, "This is usury. This is excessive fees. This is ridiculous." Sometimes, these restrictions may be fairly broad. For example in Hong Kong, we have a law that says a bank or financial services company cannot charge more than 50 percent interest per year. Now you might look and say, "Wait a minute, did you just say 50 percent interest? How is that a protection? 15 is a protection, 50, five zero sounds like a huge interest rate." But what happens if you start to look at origination fees, and service fees, and various other fees that are built into a loan packaging? Small customers can sometimes get hit with fees that are greater than that. So, payday lending or title loan companies operating in the US may charge fees that are higher than that. You may say, "Well, that's clearly a lot." Now, maybe a lot, meaning very very profitable and we'd love to get in that business, or it may be a lot meaning a more. And that's an issue for regulators to decide. When is a lot too much? When is it unfair? In some cases, you may say, "Look,50 percent interests, that's outrageous." But what you might want to think about is venture capital funds typically look for returns from the investments they're making in excess of 50 percent. They don't earn it on average. VC funds don't earn and on average across the industry of 50 percent returns. That doesn't happen. But when they look at their potential investments, they want to see an upside of 50 percent greater return on their money because some of the firms will fail. So they know they're going to lose all of their money sometimes, they need to have some big wins that have more than 50 percent return per year in order to make this a reasonable business. You can argue that many small borrower's default a lot. Subprime loans, for example, are riskier loans that charge high interest rates. And therefore, because they're riskier, they need a higher return to make it worth doing, otherwise borrower with a poor credit rating couldn't get any loan at all. And so the alternative of too much protection is some people just don't have access to mortgages or other financial services because they're not the best credit risk. So we don't want to protect consumers so much that we protect them from being able to get any financial services or be able to make investments or make loans. At the same time, we want to protect consumers not just from fraud or other misleading information, which is the one area I mentioned of the three. The second thing is we want to protect consumers from undertaking risk which is greater than they understand. So this is the idea that you want to protect people from investing in a VC company, a startup when they don't have the financial where with all to do so. So a small investor should not be taking a 50 percent return on risk on their capital to get this huge upside because they can't afford it. This is one of the reasons governments may make gambling illegal, because they're saying, "You know what? We're never going to stop rich people from gambling. They do it with options and futures and derivatives of various types and, they're going to find ways to gamble. They're going to find ways to take high risk and make high returns in one way shape or form. If you stop people rich people from gambling as a variety of countries have found, they'll get on an airplane and fly to some other country where they can do their gambling." So, rich people will find a way to gamble, but you can stop poor people from gambling. When to gamble means their children may not have food, that their families may get divorce or financial hardships that societies may suffer from this breakdown in responsibility and fiscal responsibility. And so, people who can't afford to gamble shouldn't be gambling. And that's a basic principle we want to protect people particularly from making gambles that they don't realize are gambles. This overlaps with fraud because people that are committing fraud will often promise you, if you will invest in this new ICO, I guarantee that you will make 40 percent per month return or 40 percent per year or whatever the crazy high number is, you're going to get rich from this investment. It's magic. And there's no risk. There is no downside. Anyone promising you great upside with no downside is that the very best case foolish and misleading you. The worst case, they're committing fraud. They're trying to steal from you. In many cases, they're trying to steal from you, but they may be sincerely believe that god has blessed them with great insight and they're going to make you rich, and this is the path to great wealth and success. It's interesting how many people put published books about great wealth and success and make money off of their books, but don't necessarily achieve success by following their own advice. So, be careful, people that are promising easy riches for no risk are often delivering high risk with no return and governments have a vested interest in protecting society against such risk. In particular, they're concerned about the large masses of ordinary people being defrauded by many, many hucksters selling something as without risk when it turns out it has high risk. They put a lot of money in, and all of a sudden, they lose it. This is why governments regulate things like Pump-and-dump stock schemes, boiler room, trading operations that are trying to get people to buy stocks that are going up and up and up and then crash as soon as you've gotten all the small investor money and the big money his cashed out, and then they reveal that there's nothing in the company, it's a shell, and it's a fraud. Now, everyone left is holding the bag feels cheated. So, governments try to prevent that. They also try to prevent a third area of risk for protecting consumers, which is something finance firms and many other firms, marketing firms also like a lot and that is to know your customer.